Why regulating gas fracking could be cheaper than the alternatives

ByBrad Plumer

May 29, 2012

We’re living in a “Golden Age of Gas,” says the International Energy Agency. Trapped in shale-rock formations around the world are trillions of cubic feet of unconventional natural gas. And drillers now have the technology to pluck it out. That’s a lot of cheap fuel — and it’s lower-carbon than coal.

Not a fan of fracking. (Mike Groll/AP)

That, in turn, has led to a prickly debate over how fracking should be regulated. Industry groups sometimes argue that too much regulation will stifle drilling and make this potent new energy source more costly. But Michael Levi points to a new IEA report suggesting that careful regulations might end up being cheaper for the industry than no regulations at all. Why? Because unrestrained fracking could lead to mass opposition that limits new gas development altogether.

The IEA report (pdf) estimates that strict environmental regulations on fracking would add just 7 percent to the cost of gas production. Here’s Levi: “The IEA estimates, of course, are extremely crude. It wouldn’t be surprising to see compliance costs twice what they estimate — or half. Either way, the bottom line remains: Smart regulation of shale gas looks like it would be relatively cheap.”

Under a scenario where governments and drillers agree to adopt these rules, the IEA expects production to boom and natural gas to replace coal as the world’s second-largest energy source by 2035, behind oil. (This is all assuming, by the way, that countries don’t take further action to curtail their carbon emissions — doing so could affect natural gas, which is still a fossil fuel, even if it’s cleaner than coal.)

The no-regulation alternative, meanwhile, could prove even worse for the shale-gas industry. If strict environmental rules aren’t adopted, the IEA warns that voters in countries around the world could turn on drilling projects, especially if accidents became more commonplace. Anti-fracking protests like those in New York State might become the norm.

In this case, the IEA projects, shale gas development probably wouldn’t rise much above current levels by 2035. Coal would maintain its dominant position as the fuel of choice for electricity production — and, as a result, global greenhouse-gas emissions would be about 1.3 percent higher than otherwise.

So what are these “golden rules” for fracking, anyway? They include everything from choosing drilling sites carefully to regulating the construction of wells and disposal sites to minimize the risk of leaks and earthquakes. The IEA also calls for careful monitoring of drinking water and for technologies to tamp down on methane leaks so as to minimize the climate impacts of fracking.

“If this new industry is to prosper, it needs to earn and maintain its social license to operate,” warned IEA Chief Economist Fatih Birol, author of the report. “This comes with a financial cost, but in our estimation the additional costs are likely to be limited.” And, at the very least, it might prove cheaper than the alternatives.